Barclays chairman complains about 'disproportionate' fines

The chairman of Barclays has hit out against the £20bn in fines and taxes imposed on the bank, saying the resulting job cuts, branch closures and reduction in lending to small businesses have a very real impact on the UK economy and wider society.

As the bank on Tuesday reported an 8% fall in profits to £2.1bn in 2015, more than halved its dividend and warned of further job cuts, John McFarlane said as it shrank it would not be able to pay such large penalties in future.

“When conduct charges consume our profits, as they have for the past three years, we have no choice but to meet them by shrinking our franchise – selling or closing businesses – which reduces our capacity to support the real economy,” he said.

“A £50m fine or penalty is the equivalent of employing 1,000 fewer employees, closing 100 small regional branches, or foregoing the capacity to lend over £500m to small businesses or consumers. The societal costs of excessive penalties is very real. The charges are not proportionate to our smaller size and ability to pay relative to many of our peers.”

Barclays shares fell 10% in early trading on Tuesday - and at one point were suspended because of the volatility - after the bank said the dividend of 6.5p for 2015 would be cut to 3p in each of 2016 and 2017.

Jes Staley, making his first announcement since taking the helm as Barclays chief executive in December, told analysts that the bank had paid out £20bn in fines and taxes which were holding back its ability to generate capital. He said his aim was address all the conduct issues that still hung over the bank - and avoid new ones.

Staley said that headcount had already fallen by 5,700 as a result of a hiring freeze he put in place when he joined in December and admitted further cuts would take place during the year as he restructured the business, including 44,000 as he pulled back from Africa.

Moral compass

He also attacked previous pay practices, saying banks had paid bonuses “based on profits they expected to earn in the future and then it all came tumbling down”.

“It is fair to question whether bankers lost their moral compass in the 1990s because of their single minded pursuit of their personal wealth,” Staley added.

“A company that retains the loyalty of its employees solely based on compensation is a company that gambles with its institutional culture. I want Barclays to be a bank where our employees choose to work here because they believe in the institution, and its intrinsically valuable role in society.”

He said he was “announcing initiatives to accelerate our strategy and simplify the group”.

The bank, which is battling to restore its reputation after the Libor rigging scandal, also listed new regulatory investigations it faces as it published its annual report.

Barclays revealed that it faced regulatory action – and potential fines – from the Financial Conduct Authority over the way it sold structured deposit products to UK customers from June 2008 to the present. There is also an investigation in its US wealth management business and review in its South African business into “potentially fraudulent activity by certain of its customers using import advance payments”. It also cited an court case involving trading in US government bonds.

Profits in 2015 were knocked by another £1.5bn provision to cover the cost of payment protection insurance mis-selling claims, taking the total cost for customer redress in the year to was £2.7bn.

There were also additional provisions in the fourth quarter of the year, including £167m for foreign exchange rigging – taking total provisions in 2015 for £1.2bn for this matter.

Top pay was £9.5m

Staley, a former JP Morgan banker, took the helm of Barclays in December and replaced Antony Jenkins, who was ousted in July. The annual report showed that Jenkins received £3.4m for his six months as chief executive but will continue to be paid until July this year - £2m plus a £363,000 pension allowance. He also received £106,000 in legal costs and could receive up to 1.9m shares - worth £3m at current share prices - in the coming years depending on the performance of the bank.

The highest paid director, whose identity is not revealed, received £9.5m.

The bank, which has faced regular criticism over its bonus deals, said its bonus pool was down 10% to £1.6bn while it paid 323 staff more than £1m or more.

Staley’s restructuring includes a plan to reduce its stake in its African business - which expanded in 2005 when it bought South African bank Absa – and reduce its payout to shareholders.

He also announced plans to prepare for the UK ring-fencing rules being introduced in 2019 which require banks to separate their high street and investment banking businesses.

The business will be divided into two divisions: Barclays UK, which will be the ring fenced high street operation, and Barclays corporate and international which will house the once powerful investment banking division.

Gary Greenwood, analyst at Shore Capital, described the results as “dismal” and noted the bank appeared to be ditching targets set to measure returns to shareholders.